Power of Residential Property Investment

Lease option strategy is used for selling properties in a hard market where there are very few qualified buyers. If the property is easy to sell then it will be more convenient for you to sell the property in the conventional way wherein the buyer will pay you cash for the purchase.

Benefits of Lease Homes with Option to Buy

• It is a good way for you to sell a vacant property at market value on which you are paying a mortgage.
• It helps a buyer with a poor/ no credit history or down payment to buy a home. Such buyers will not qualify for a home loan from a bank. These buyers get the benefits of home ownership.
• Although the buyer will be making higher lease payments that may exceed market rent they will be making payments towards their down payment.
• The buyer gets the benefit of capital appreciation on the property during the period of home lease to buy.
• For the buyers who lack self discipline will have the benefit a forced savings plan because part of the rent is credited toward the purchase price of the house which is adjusted at the end of the lease option agreement.
• As opposed to a normal tenant a home lease to buy renter pays will not only look after the property as his own but will often make improvements to the house.
• A lease with option to buy tenant will also pay all the outgoings on the property which will lighten your financial burden and risk considerably.
• If the lease option purchaser defaults, you as a seller are not obliged do not refund any portion of the lease payments or the option money unless and otherwise it is specified in the contract. You may also retain the right to sue purchaser for breach of the agreement.

Fundamentals of a Lease Option Contract

• The buyer will pay you (vendor) option money for the right to buy the property at a specified date normally two to three years. It is advisable to keep this amount as high as possible.
• You and the lease option purchaser will need to agree on a purchase price that either reflects the current valuation or future market value when the option is exercised. This is something you will need to negotiate. It will be beneficial for you to lock in the future purchase price at the time of signing the agreement.
• The purchaser agrees to lease the house from you at a specified rental amount for the duration of the lease term.
• The term of the lease option contract is negotiable, it is generally two to three years.
• The option money paid by the purchaser is generally not counted toward the down payment.
• It is common to have a part of the monthly rental payment to apply toward the purchase price of the property.
• Option money is generally not refundable in case of a default.
• You as a seller can not sell the property to another buyer during the home lease to buy period.
• Purchaser cannot assign the lease option to a third party without your approval.
• The home lease to buy option will expire and the purchaser will lose his deposit and other monies paid if he fails to settle on the property at the end of the lease term.
• The purchaser may or may not be obligated to buy the property depending upon the terms of the agreement.

Final Thoughts on Homes Lease Options

It is advisable for you to obtain the services of a real estate lawyer to draw out an agreement. Do not rely on the agreements provided by real estate agents as they are not lawyers. Lease option contracts are specialized and very different from normal sale and Purchase agreements. These documents specify your rights and including the consequences in case of a default by either the buyer or the seller. It is also possible that the property is encumbered by underlying loans that contain alienation clauses.

As a purchaser you must do your due diligence and obtain all the disclosures just like you would do in case of a regular sale. You must carry out a full home inspection, check the title of the property, get a builders inspection report and try and ascertain the market value of the property.

As a seller it your duty to assist the purchaser in every possible way with the information you have. You are entering into long term business deal and its success depends upon how well you establish a relationship of honesty and integrity.

Lease Option deals can be very beneficial to both the investor and the first home buyer if it is structured properly from the outset.